A differential fault tolerance encoding is presented for finite state machines (FSMs) to improve their area efficiency. As the manufacturing technology for semiconductors continues to scale down, the probability of the occurrence of unexpected faults in integrated circuits has been increasing. Because an FSM controls an entire digital circuit, the faults in FSMs should be carefully addressed. Whereas the previous encoding applies a fault tolerance scheme to all the states in an FSM, the proposed encoding applies a fault tolerance scheme to only specific states depending on their importance. Compared with the previous complete fault tolerance encoding, the proposed encoding provides a comparable failure probability with a small hardware by applying the fault tolerance scheme differently to each state. The proposed method improves the area efficiency by 36.1%, 43.8%, 49.2%, and 74.6% compared with that by the non-fault tolerance, previous hardware redundancy, information redundancy, and time redundancy methods, respectively. Consequently, the proposed method can provide a flexible solution by applying the fault tolerance differently depending on the importance of the states.